Municipalities must significantly adapt expenditure

Cuts and chops related to decentralization

10 September 2013

There is a gap of € 6 billion between the expected income and expenditure of municipalities in 2017. Unlike the national government, however, municipalities are obliged to balance their budgets. This means that significant changes will be unavoidable. This is revealed by research published by COELO on Tuesday. COELO (the Centre for Research on Local Government Economics) is a research institute linked to the University of Groningen. The research was conducted together with Bruno Steiner Advies, a consultancy bureau.

The financial gap has three component parts. The first is the difference between expected income and expenditure on the basis of existing policy: € 2.7 billion per annum. The second part comprises the cuts to tasks in the social domain that will soon be decentralized to the municipalities: € 2.9 billion. The third part is the municipal contribution to the € 6 billion of extra cutbacks ordered by the Cabinet: € 0.5 billion. Altogether, that amounts to € 6.1 billion of unsecured expenditure.

Balanced budget

Unlike the national government, municipalities have to balance their budgets. The shortfall of € 6.1 billion thus becomes a duty and municipalities will have to do whatever it takes to close the gap. However, there are very few options open to them.

Increased tax burden not an option

The Cabinet will cover a significant proportion of its restructuring by increasing taxes for citizens and companies. This is not an option open to municipalities. Their income from taxes is so limited that even doubling it would not help. Municipalities are going to have to cut their services and citizens are going to notice.

Citizens will not approve certain cutbacks

The COELO research reveals that most people will accept cuts to things like street lighting, community centres and sports facilities. Cuts in the social domain (home care, youth care, sheltered employment service), however, are rejected by most citizens. And that’s where most of the money goes, much more than to street lighting.

Less care

The national government is transferring tasks from the social domain to municipalities in 2015. This involves Youth Care, the assistance, support and care provided on the basis of the AWBZ (Exceptional Medical Expenses Act) and the Participation Act (a combination of benefits, sheltered employment and the ‘Wajong’ Invalidity Insurance (Young Disabled Persons) Act. The Cabinet’s aim is a ‘paradigm shift’. Less care can be provided and people will have to do more themselves or call on the help of volunteers. Municipalities are going to be expected to offer better care with less money via an integrated approach. What is needed is tailored solutions.

Differences in service provision unacceptable

An unavoidable consequence of tailored solutions is the emergence of regional differences in service provision in the social field. Such differences are comprehensively rejected by citizens, the COELO research reveals. This will make it very difficult for municipalities to actually realize the planned cutbacks in the social domain.

Investments suffer

Municipalities are responsible for a large proportion (45 percent) of all government investment. These investments will be under great pressure. If municipalities are forced to cover half of their financial shortfall in this way, this would result in a reduction of no less than 33 percent of municipal investment and 15 percent of all government investment. In the short term, that will result in a negative economic impulse, with serious consequences for job creation and economic growth. In the long term, the quality of roads, sewers and buildings will come under threat.

Importance of municipalities

Municipalities are important players within the Dutch government system. A quarter of all government expenditure is down to municipalities. Municipal expenditure is thus good for nearly 10 percent of GDP. Municipalities are also significant players in the economy. Their material expenditure is € 20 billion a year, nearly half of which is investment. No less than 45 percent of all government investment is done by municipalities.

Commission

The research was commissioned by the Association of Netherlands Municipalities (VNG).

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